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Latest Legal Action Against Insurance Company Draws Attention to Industry's Previous Practices

Monday, July 10, 2006 -Washington DC)—Today in Mississippi, the first Hurricane Katrina-related trial against an insurance company will begin. This latest legal action against the Nationwide Mutual Insurance Co. draws attention to numerous allegations again the industry as a whole. Long before Katrina came ashore, insurance companies have been accused of cheating victims of natural disasters and defrauding consumers. Over the last decade we’ve seen insurance companies dramatically increase their premiums, even while claims payments have dropped. One company even used the 9/11 attacks as an excuse to increase premiums for a blueberry farmer by 500 percent. Other companies have been accused of cheating victims of natural disasters. Some have even been found guilty of engaging in fraud. And after all of this, the insurance industry reported record profits last year. Here are just a few instances of bad behavior by insurance companies over the last several years:

Insurance Companies Increasing Premiums

• Insurance Company Used 9/11 Terrorist Attacks as Justification for a 500 Percent Premium Increase for Blueberry Farmers. Croswell Berry Farm's decision to close their doors after three decades in business wasn't made because of a bad crop or a lowered demand for the fruits of their labor - but was made after they found out their liability coverage would skyrocket 500 percent if they stayed in business, a growth their insurance agent attributed to wariness after the September 11 terrorist attack. [Times Herald, 7/18/02]
  
  
• Study Shows that Skyrocketing Premiums Are Actually the Result of Medical Malpractice Insurers Price-Gouging Doctors. A 2005 study conducted by former Missouri Insurance Commissioner Jay Angoff found that insurance companies have been price-gouging doctors by drastically raising their insurance premiums, even though claims payments have been flat, or in some cases decreasing. According to the annual statements of the 15 largest insurance companies, the amount malpractice insurers collected in premiums increased by 120.2 percent between 2000 and 2004, while their claims payouts rose by only 5.7 percent. Thus, they increased their premiums by 21 times the increase in their claims payments. [“Falling Claims and Rising Premiums in the Medical Malpractice Insurance Industry,” Jay Angoff, 7/05; http://www.centerjd.org/ANGOFFReport.pdf]

Allegations of Fraud Committed by Insurance Companies

• Former State Farm Employee Testified that Company Agents Forged Waiver Documents to Avoid Paying Earthquake-Related Claims. Former State Farm employee Amy Zuniga revealed that State Farm’s officials routinely defrauded policyholders and lied in court. She said in sworn statements that in the aftermath of the 1994 Northridge earthquake State Farm agents attempted to avoid paying claims by systematically forging signatures to make it appear that policy holders had declined earthquake coverage. [“State Farm Returns Documents to Court File,” Los Angeles Times, 6/5/97; Ledger Dispatch (CA), 6/4/97; Note: The text of Zuniga’s statement can be accessed on line at: http://www.monttla.com/zuniga.htm]
  
  
• Prudential Fined for Defrauding More than 10 Million Customers. In 1996 Prudential Insurance Company of America agreed to pay a $35 million fine and set aside money to settle policyholders lawsuits after an investigation found the company had defrauded more than 10 million life insurance customers. By 1999 Prudential estimated those settlements would total more than $2 billion. Prudential’s 1996 internal audit conducted after the fine was paid found that the company was still leaving policyholders open to unauthorized activity and improper practices. An internal memo said that the company was not able to always detect fraud committed by its employees against policyholders, and concluded that the company had underestimated the incidence of such fraud. In 1997, a federal judge fined Prudential $1 million after finding that the company had deliberately destroyed or hidden documents in connection with the very same fraud suit. [“Prudential to Pay $410 Million For Misleading Policyholders,” Joseph Treaster, New York Times, 9/25/96; “Prudential Deceptive Sales Tactics Continued Into 1996,” Wall Street Journal, 12/22/97; “Judge fines Prudential $ 1 million for document destruction,” Associated Press, 1/6/97]
  
  
• Mississippi Suit Alleges Insurance Companies Engaged in Fraud; Tried to Trick Hurricane Victims. Mississippi Attorney General Jim Hood sued five insurance companies in 2005, alleging that adjusters for the companies tried to trick Hurricane Katrina victims out of millions of dollars in homeowner claims. According to Reuters, “[a]djusters for Nationwide Mutual Insurance and other insurers asked policyholders to sign forms that acknowledged they sustained flood damage, which is not covered by homeowners' insurance, according to Hood. Adjusters have cajoled victims to sign the forms, saying they are necessary to immediately receive a check for living expenses. The companies can use the sentence regarding flood damage against policyholders later, Hood said. The difference is important. Damaged caused by wind or water falling into a structure, like through a hole, typically is covered by a homeowner policy. Damage from rising water, however, usually would be covered only by the National Flood Insurance Program, which is run by the Federal Emergency Management Agency. … The suit, filed in county chancery court, asks for a temporary restraining order to stop the use of such forms. Nationwide, identified by Hood as a lead defendant, did not immediately return a call seeking comment. Hood also sued Mississippi Farm Bureau Insurance, State Farm Fire and Casualty, Allstate Property and Casualty and United Services Automobile Association.” [“Mississippi sues insurers over Katrina claims” Reuters, 9/15/05]
  
  
• Oklahoma Jury: State Farm Acted “Recklessly” and “With Malice” in Handling Insurance Claims. Earlier this year, a jury in Oklahoma concluded that State Farm Insurance acted “recklessly” and “with malice” when handling claims for dozens of families who owned homes damaged by a series of tornados in 1999. As CNN has reported, a group of homeowners brought a class action lawsuit against the company, alleging that State Farm hired a engineering to internally undervalue tornado damage to homes: “[a]ccording to the lawsuit, State Farm hired Texas-based Haag Engineering, which intentionally undervalued damage to homes or claimed the damage was caused by other factors -- like faulty construction -- instead of tornadoes. The jury ruled that State Farm ‘recklessly disregarded’ its duty to deal fairly and act in good faith with the Watkinses [the lead plaintiffs in the lawsuit] and that it ‘intentionally and with malice’ breached its duties as the couple's insurance company. The jury further found ‘clear and convincing evidence’ that State Farm recklessly disregarded its duty to act fairly and in good faith with members of the class action by employing Haag Engineering and its independent adjusters from E.A. Renfro Co. It also said State Farm acted intentionally and with malice in dealing with customers in the use of these two companies.” [“State Farm penalized in suit over tornado claims; Verdict could affect similar lawsuits involving Katrina,” CNN, 5/26/06]

Insurance Industry Making Record Profits

• Insurance Companies Made a Record $44.8 Billion in 2005; Increased Industry Surplus by More than $427 Billion. According to the Los Angeles Times, “The companies that provide Americans with their homeowners and auto insurance made a record $44.8-billion profit last year even after accounting for the claims of policyholders wiped out by Hurricane Katrina and the other big storms of 2005, according to the firms' filings with state regulators….an 18.7% increase over the previous year. …Besides boosting profits, the industry raised its surplus by more than 7% to nearly $427 billion, according to an analysis of company filings by the National Assn. of Insurance Commissioners, which represents regulators from the 50 states. The surplus is intended to provide a financial cushion in times of high claims.” [“Insurers Saw Record Gains in Year of Catastrophic Loss; They say the profits are a fluke, but the industry has worked to shift risk to clients and the public,” Los Angeles Times, 4/5/06]

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